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CHAPTER V
BURDEN,PROGRESSIVITY M D IMPACT OP PERSONAL INCOME TAXATION OH INCOE3B DISTRIBUTION
In ancient times, the subjects of a country made
voluntary contributions to the state far the essential
functions discharged by the ruler which included protection
to person and property. Taxes were levied cautiously not to
prove a heavy 'burden' on the tax payers. The tax system
should be such as not to prove a great burden on the public,
The king should act like a honey bee which collects honey
without inconveniencing the plant or the flower
(Kautilya,Qth Century I3.C).
As the taxation transformed from a voluntary
contribution to a compulsory levy, the term 'burden' became
complementary to taxation, In modern times, the burden of
taxation is felt, be it direct or indirect, under any system
of government. Recently the political climate in any
country warrant8 that the tax burden, though exists, should
not be apparent, as Luc De Wolf (1983) observes that the
taxation system must look more pro-poor than it is allowed
to be in reality. Besides, there ier a close connection
between the system of government and t a x palicies(Thavaraj,
1992). They have more relevance in democracy than in any
other form of government. It is impossible to insulate
policy-making and tax administration from the vagaries and
exigencies of political climate in the government,
Thimmaiah (1986) supplements that by introducing so many
direct taxes together that political leaders tried to
convince the majority of the vast masses that the richer
people were bearing high burden of taxation and therefore
the massee should also contribute to whatever extent
poasible through indirect taxes for the development effort
of the country. This led to enormous increase in rates and
coverage of indirect taxea as well as direct taxes.
Among the direct taxes, taxes on income occupy a
prominent place in the tax system of the capitalist
countries. They have no or very negligible role in
socialist countries. For instance, there is no tax on
income in China and personal income taxation in USSR did not
provide more than 10 per cent of the total tax revenue,
while in U . S . A the receipts from personal income taxation
was 46.7 per cent ( as early as 1957) of ehe federal budget
revenues. In socialist countries,redisltribution of income
is mainly brought about by direct methods and not through
taxation (Radhika Daes, 1966).
It is in this context, Nicholas Kaldor (1980) observed
that the purpose of personal (or 'direct' ) taxation i a to
provide equity and fairness in the distribution of the tax
burden in the community. Looking at the problem from the
revenue aspect alone, it might be administratively simpler
to collect any given total of revenue by taxes on
transactions such as sales taxes, excise duties, etc. - or ad valorem taxes of various kinds - rather than by taxes levied on persons assessed according to some overall
criterion of 'ability to pay' on a graduated scale. In a
developing country, where privately owned wealth grows
rapidly and unevenly, a situation in which the burden
imposed on broad masses of population would become socially
intolerable, This problem is particularly important for
India which is on the threshold of a period of accelerated
economic development and whoae people desire to strike a
"middle road" between Western capitalism and Eaetern
socialism. In India the great bulk of national wealth is
and will continue to be privately owned, Induetries and
landed property that may be taken over by the state will not
fundamentally alter this state of affairs if duo
compensation is paid to the owners. Owing to the fact the
savings of the community are more unevenly distributed than
income, there is an inevitable tendency for wealth of the
largest property owners to grow at a faster rate than wealth
in general, unless effectively counteracted by the tax
system or other inwtrumenta of public policy.
The objective of improving the distribution of income
and wealth can be achieved through a number of policy
measures like land reforms, ceilings on urban property,
industrial policy, employment policies, pricing and
distribution policies etc. Fiacal policy is one of the most
important policies which can be used effectively for this
purpose (Srinivaan, 1974).
The objective of achieving a better distribution of
income and wealth has been given considerable importance in
India. In the Constitution of India, the Directive
Principles of State Policy clearly mentions that the
government should direct its policies so as to ensure that
the ownership and control of the means of production are
distributed in a manner to subaerve the common good and the
operation of the economic system does not lead to
concentration of wealth and means of production to the
common detriment. The various Five Year Plans have also
emphaaised this objective of reducing the inequalities of
income and wealth (Krishna Rao, 1987). In this context, to
maintain the principle of equity, progressivity has been
introduced in the area of personal income taxation.
The concept of 'Progressivity' emerged from the Adam
Smith'a canon8 of taxation which speak of the principle of
equity. Smith says: "It is not very unreasonable that the
rich should contribute to the public expenae not only in
proportion to their income, but Borne thing more than that
proportion" (Adam Smith, 1776). Dalton (1954) maintains that
the principle of sacrifice lead to progressive taxation
provided 'the marginal utility of income diminishes fairly
rapidly as income increases'.
After examining the importance of personal income
taxation in terms of burden, progressivity and its impact
on diatribution of income, the basic issue raised ia to what
extent personal income taxation in India is able to attain
the objective of progreaaivity and equality of distribution
of income and what the determinant factors of impact of
personal income taxation on distribution of income are.
In the above context, attempts have been made at the
global level to study the progressivity and burden of the
personal income taxation and their impact on the income
distribution. A number of seminal works exist at the global
level in this area and they include Fagan (19381, Chapman
(19431, Lutz(1947), Vickrey (1947), Grooves 419481, Muagrave
and Thin ( 1 9 4 8 ) , Musgrave (19591, Weisbroad and Hansen
(1968), Atkinson (1970,1973), Mirlesa (19711, Allingham and
Sandmo (19721, Sheshinkski (19721, Sen (19731, Joy (19761,
Khetal and Poddar (1976), Kakwani (1977)' Reynalds and
Smolensrky (1977), Suits (1977), Irvine (1980), Friesen and
Miller (19831, Kiefer (19841, Formby, Smith and Thistle
(1984,1987, 1990, 1992) Green and Balkan (19871, Pfahler
(19871, Fitaerald and Maloney (19901, Kern (19901, Stratmann
(19901, Udo Ebert (19921, and D'Souza (1995). Besidea,
studies related to India were made by Ved P , Gandhi (1970),
Bardhan and Srinivasan (19741, Amaresh Bagchi (19951, Anupam
Gupta (19751, Das Gupta (1976), Lakdavala (19761, Pulin B .
Nayak (19891, Anupam Gupta and Pawan K. Aggarawal (1982),
~othari (1987), Shekhar Mehka (19891, Satya Paul (19891,
Pawan K. Aggarwal (1989, 1990a, 1990b, 1991a, 1991b, 19921,
~ripesh Poddar (19901, Government of India (19921,
Parthasarathi Shome (19931, and Raja J. Chelliah (1994).
Though the above studies were scientific and
exhaustive, they did not concentrate on the impact of
structural dimension on burden and distribution of personal
income taxation and also the stability of determinants of
impact of personal income taxation on distribution of
income. In addition, the results of the above studies are
diversified in nature. Keeping these aspects in mind, the
present chapter attempts to investigate the following
objectives:
i) To examine the burden, progressivity and impact of
personal income taxation on distribution of income,
ii) To identify the determinants of impact of pereonal
income taxation on distribution of income and to test the
stability of the determinant8 of impact personal income
taxation on distribution of income.
Average burden and marginal burden concepts are used to
examine the burden of personal income taxation and it is
presented below:
Average burden of peraonal income tax = T/Y
Marginal burden of personal income tax =AT/ AY
Where,
T = Persoi 1 income tax,
Y = II)IC?C~' . . ~ c a h pal -,, d I i U
= Change.
To examine the redistributive impact of personal income
taxation, t a x level, tax progreseivity and Gini coefficient
ratios before and after t a x are cornpuked and it is presented
below:
Tax level can be represented by the weighted average of
etatutory marginal tax rate and it is computed as:
Where,
TL = Tax level,
156
m = Marginal tax rate ( A T/A Y) ,
w = Weight attached to the respective marginal
tax rate i.e., proportion of tax payers to
total tax payers in each income range.
Tax progressivity ia computed by using Kakwani's (1977)
measure of tax progressivity and it is defined as:
TP = [(l-t)/t)(Gl - G2)l Where,
TI? = Tax progressivity,
t = average tax rate (T/Y),
GI = Gini co-efficient ratio of income distributian before tax, and
G2 = Gini ca-efficient ratio of income distribution a£ ter tax.
Gini coefficient ratias of pre-tax and post-tax income
distribution are computed for examining the redistributive
impact of personal income taxation on income distribution
and it ia presented below:
n-1 n-1 C X Y - C Y X i=l i i+l i=I i i+l
Gini coefficient ratio = ............................... 10.000
Where,
xi = cumulative percentage of number of tax payers,
Yi = cumulative percentage of income.
For identifying the determinants of redistribution
impact of personal income tax on income diatribution, the
follawing loglinear multiple regression equation adopted by
Pawan K, Aggarwal (1990a) is employed and it is presented
below:
LRI = ag + a1 LTP + a2 LTL * a3 LIE + u
Where,
RI = Redistributive impact of personal income tax
on income diatribution i.e., the difference
between the Gini co-efficients of pre-tax and
post-tax income distribution,
Tax progressivity,
Tax level,
Inequality of pretax income distribution,
Random error term,
natural logarithm, and
parameters to be estimated and we expect the aign of that parameter are positive.
Chow test (1960) is employed to test the in£ luence of
structural diarturbances (change of political stability to
instability) on the stability of determinants of
redistributive impact of personal income taxation on income
distribution and it is presented below:
(RSS - ( R S S + RSS ))/K P 1 2
F = -------------A-e--------
(RSS + RSS ) / (n + n - 2 K ) 1 2 1 2
Where,
RSSp = Residual sum of squares of pooled regressiol
equation,
RSSl = Residual sum of squares of regression
equation of the first phase,
RSS2 = Residual sum of squares of regression
equation of the second phase,
K = Number of parameters, and
nl, n2 = Sample sizes of the two phases.
Empirical Result: and Discussion
On the basis of the objectives of our study the
analysis of the present chapter is divided into four
categories. They are:
i) Burden of personal income taxation,
ii) Tax level and Tax progressivity,
iii) Redistributive impact of personal income taxation
on distribution of income, and
iv) Determinants of impact of personal income taxation
on distribution of income.
(i) Burden of Personal Encome Taxation
The burden of a tax may be estimated in two dimensions,
average and marginal. The average burden signifies the
burden of taxation in absolute terms and is measured by the
ratio of t a x paid to the income of the t a x payers. The
marginal burden indicates the incremental burden of tax for
a change in incame of the tax payer.
Average burden of personal income tax in India across
selected income ranges during the study period from 1962-63
to 1988-89 i a shown in table 5.1. The study grouped the t a x
payers according to their income into four different
categories, The table shows the average burden of each such
group and also in respect to total tax payers over the
period of our study. In respect of all tax payers the
average tax burden has been consistently increasing from
0.1282 in 1962-63 to 0.1848 in 1988-89. There were certain
jinks in the trend to the lowest of 0.1173 in 1964-65 and to
the highest of 0.1958 in 1983-84. These minor deviations
are common in any trend analysis. The over all trend shows
that the average tax burden of peraonal income tax in India
has been increasing over the years. We understand that the
exemption limits have been raieed from time to time to
adjust to the rise in price and the t a x rates have been
varied to satisfy the tax payer=. But still the average tax
burden is on the upswing. This shows that the coqcessions
and incentives given in the form of exemptions and rebates
are only 'fiscal illusion' created by the tax
administrators, keeping the average burden constantly rising
over the years.
However, the group wise estimates of average tax burden
of personal income taxation in our country brings certain
facts to light. The average tax burden in respect of the
tax payers with income of Rs. 20,000 and below rose from
0.0401 in 1962-63 to 0.0874 in 1982-83 continuously but
dipped to 0.0274 in 1984-85 mainly due to reduction of
minimum tax rate from 30 per cent to 25 per cent during the
year. The continued falling trend may be associated with
the same factor clubbed with raising of the exemption limit
from Rs.15,000 to Rs. 18,000. The tax payers with the
income range of Rs.20,000 to Rs.50,000 have been treated
softly only after 1977-78. Their average burden which was
0.1978 in 1962-63 gradually rose to 0.2307 1974-75 started
slowly dimming downward to the lowest of 0.1052 in 1988-89.
This group is found to be benefitted by the tax rebates and
concessions extended during the period.
The third group of tax payers with income of Rs.50,000
to Rs. 1,00,00 have also been enjoying the benefits from
1962-63 onwards. Their relative average tax burden during
the study period declined from 0.4114 in 1962-63 to 0.2249
in 1988-89. The decline in the burden is almost continuous
except for a marginal dips in the intervening years.
The high income group with an income of above
Rs.1,00,000 has also been extended soft treatment with
reduced average tax burden during the study period. Their
burden was 0.6496 in 1962-63 which declined almost half of
it to 0.3811 in 1988-89. It is found that the highest
income group of tax payers also made use of the cancessions
extended to them.
The marginal burden of personal income tax across
selected income ranges is presented in table 5.2. Marginal
burden explains the degree of additional or reduced burden
of the tax burden as they move from lower income range to
high income range, The table shows clearly that in the year
1962-63 as the tax payer8 move from low incame group to high
income group their marginal tax burden increases from 0.0401
to 0.7791, while the mid two income groups having the
marginal burden of 0.2480 and 0.5789 respectively. In
respect of the first group of tax payers the marginal burden
was the highest in 1982-83 as the minimum tax rate was 30
per cent in that year, while the marginal tax burden was the
highest in respect of all other group in 1974-75, since the
highest maximum tax including surcharge stood at the
historic rate 97.75 per cent during the year.
(ii) Tax Level and Tax Progressivity
After examining the burden of personal income taxation
in terms of taxpayers income, let us examine the Lax level
and tax progressivity of personal income taxation, which
will throw 1 ight on redistributive impact of the personal
income taxation.
Redistributive impact of personal income taxation can
be studied by the Tax Level and Tax Progressivity. The tax
level is represented by a simple or weighted average of the
statutory marginal tax rates. In case of weighted average,
proportion of tax payers subjected to different marginal tax
rates may be taken as the weights. On the other hand, tax
progressivity indicates the degree of progression. The tax
level is zero at the no tax level and the tax progressivity
is zero when taxation is proportional. Therefore, positive
values of tax level and tax progressivity indicate the
distributive impact of the personal income taxation. In
other words, a rise in the tax level and tax progressivity
is expected to enhance redistributive impact of the tax.
Table 5.3 indicates the results of the tax level and
tax progressivity of personal income taxation in India
during 1962-63 to 1988-89 . From the table it may be
observed that both the tax level and tax progressivity have
their role to play in the distributive impact in respect of
personal income taxation in India. However, their value
trend being different and their impact showed some degree of
variations over the years. The tax level which was only
0.0613 in 1962-63 rose gradually to 0.2287 in 1988-89, shows
that its impact has been greater as the years passed. But:
the t a x progressivity shawed an uptrend upto 1966-67 and
moved dawnward thereafter. The tax progressivity was 0.3692
in 1962-63 and it increased to 0,6494 in 1966-67 and
declined to 0.3031 in 1988-89. This proves the fact that
the tax progre~~ivity l08t its vigour in bringing about
redistribution of income, while the tax level acquired more
important role over the years,
Ciii) RedistribP1ILkve Innpact of Personal Income Taxation on Distribution of Income
The redistributive impact of a t a x nay also be measured
using concentration index OE pre-tax and post-tax incomes by
employing Gini coefficient for the respective period. The
rewilts o f Gini Coefficient of income distribution before
and after personal income taxation in India during 1962-63
to 1988-89 are presented in table 5.4. From 1962-63 to
1970-71 the concentration ratio of pre-tax income had been
around 0.4 and afterward8 it started declining to the lowest
of 0.2254 in 1981-82 and later gradually rose to reach
0.3092 in 1988-89. The post tax concentration ratio was
0.3626 in 1962-63 which declined to 0.2405 in 1988-89 and
with little jerks during the intervening years.
The ratios of Gini coefficient before personal income
tax and after personal income tax provide a clear picture
of the changing effectiveness of income tax aa
redistributive measure. Since 1962-63 to 1988-89, the
personal income taxation proved to be a very effective
measure in bringing about redistribution of income in India.
Though there have been slight variations in the degree of
impact, any value greater than one shows the positive
impact. The table 5.4 also shows that the impact of
personal income taxation has been high daring certain years
due to several factors which include discretionary and non-
discretionary measures of per~onal income taxation.
(iv) Deteraginanka of Impact of Peraonal Income Taxation on Distribution of Income
After examining the impact of personal income taxation
on the income distribution, it is worthwhile to identify the
factors influencing the degree of its impact. This will
enable the policy makers to consider on the significant
determinant factors in implementation of required policy
measures to make the impact of the personal income tax on
income distribution more effective.
Before identifying the determinants of impact of
personal income taxation on income distribution we
constructed the required correlation matrix to identify the
chances of having multicollinearity problems among the
determinants. The results of correlation matrix between the
determinants and the impact of personal income taxation on
income distribution for the year 1962-63 to 1988-89, 1962-63
to 1974-75 and 1974-75 to 1988-89, are presented in table
5.5, 5.6 and 5.7 respectively. The atudy period is divided
into two phases, 1962-75 and 1975-89, for examining the
impact of change of political stability to instability on
the determinants of impact of personal income taxation on
income distribution. The relationship between the
determinants and the impact of personal income taxation on
income distribution are in the expected direction, during
1962-1989, 1962-1975 and 1975-1989. Besides, the
association between some of the determinants is quite high
and it may end up in a problem of multicollinearity.
However, we attempted to reduce khe problem to the minimum
by adopting step-wise regression equation and the neceseary
equation is selected for the analysis on the basis of (i) 2
high 6 value, and (ii) larger number of significant
explanatory variables.
The results of the determinants of the impact of
personal income taxation on income distribution for the
period 1962-1989 are presented in table 5.8. Equation-2 is 2
better than equation 1, due to its high R value and larger
number of significant explanatory variables and it is
presented below:
Eg = -1.1605 + 0,6169 LTP + 2.5117 LIE ( 2 9 . 4 3 ) " ( 1 6 . 9 8 I R (8.91)"
One per cent increase each in tax progressivity and
income inequality leads to an increase of 0.6169 per cent
and 2.5117 per cent of difference in Gini-coefficient ratio
between pre-lax and post-tax income distribution
respectively. This implies that the impact of tax
progressivity on reducing the inequality of distribution of
income are on the expected directions which means that a
rise in the t a x progreesivity is expected to enhance the
redistributive impact of the personal income tax. Besides, a
rise (fall) in income inequality will result in a rise
(fall) in the impact of personal income taxation on
redistribution of income, irrespective of the tax level and
tax progressivity,
The equations of the determinants of impact of personal
income taxation on income distribution are estimated
separately for the years 1962-63 to 1974-75 and 1975-76 to
1988-89. The results of the estimated equation for the
period 1962-63 to 1974-75 are presented below:
LG = - 1.2640 + 0.3376 LTP + 2.6565 LIE - 0.0008 LTL (12.17)* (2.81)" (4.78)* (0.031
- 2 R = 0.9148, F = 43.95*
Beaides, the results of determinants of impact of the
determinant of personal income taxation on income
distribution for the period 1974-75 to 1988-89 are presented
below:
LG = - 0.8283 + 0.7734 LTP + 1.5408 LIE + 0.1796 LTL (4.66)* (8.43)* ( 2 . 0 7 I X * 1 2 . 3 2 ) * *
The results of the coefficient of determinants of the
impact of personal income taxation on income distribution
coefficient for the year 1962-63 to 1974-75 and 1974-75 to
1988-89 are in the expected direction. But the degree of
their influence on income distribution differed during the
two phases. The degree of influence of t a x progressivity on
income distribution was 0.3376 and 0.7734 during the first
and second phases respectively. This is due to the fact
that during the first phase tax progreasivity was higher
than second phase (see table 5.3). Higher tax progreasivity
generally leads to larger amount of evasion and this may be
responsible for differencee in the degree of impact of tax
progressivity on income distribution during the two phaees.
The degree of influence of income inequality on income
distribution due to personal income taxation is 2,6565 and
1.5408 during the first and second phases respectively.
During the first phase the pre-tax income inequality is
higher than the second phase (see table 5.4). Generally the
degree o f impact of personal income taxation on income
distribution will be higher, whenever there is a high degree
of pre-tax inequality in income distribution. This may be
the reason why the influence of pre-tax income inequality on
income distribution due to personal income t a x differed
during the two phases.
The tax level coefficient is insignificant in the first
phase and it ia also significant in the second phase.
During the first phase the tax level is relatively small
(0.058 to 0 . 0 9 2 ) compared to the second phase (0.1 to 0.23)
(See table 5.3). The tax level ia substantially higher
during the second phase and it varies significantly over the
years which may be due to a shift in the tax liability from
the lower income group to higher income groups. In terms of
number tax payers, the low income tax payers are larger than
higher income tax payers. Hence, this ahift from lower
income to higher income will popularise the government and
will help to woo the vote bank. ~ u t in the first phase this
type of populist policies did not exist due to stability of
the government.
In addition to the above, we formulated a null
hypothesis that the estimated determinants of the impact of
personal income taxation on income distribution equation are
stable against the alternative hypothesis that they are not
stable. For testing thia, we employed Chow test (1960) and
its resulta are presented in table 5.9. The 'F' value of
Chow test isr 3.32 and it is significant at five per cent
level. Hence, it can be concluded that the estimated
determinants of impact of personal income taxation on income
distribution equation are not stable during the two phases.
The possible reasons are, shift from socialistic to
liberalised, economic to populist policies and from
political stability to instability during the selected
phases.
Concluding Remarks
On the basis of the objectives of the study the
analysis of the present chapter was divided into four
categories, such as, burden of personal income taxation, tax
level and tax progressivity, redistributive impact of
personal income taxation on income distribution and
determinants of impact of personal income taxation on income
distribution.
The burden of a t a x may be estimated in two dimensions,
average and marginal. The present chapter revealed that the
average tax burden has been consistently increasing i.e.
from 0.1282 in 1962-63 to 0.1848 in 1988-89. However, the
group-wise estimates showed some variations. The results of
marginal burden across different income ranges, revealed
that aa the t a x payer moves from low to high income rangea,
the marginal tax burden is found increasing reasonably.
The redistributive impact of the personal income
taxation can be studied by the tax level and tax
progressivity. The tax level is represented by the weighted
average of the statutory marginal tax rates; tax
progreesivity on the other hand indicates the degree of
progression. The study proved that both tax level and tax
progressivity have a role in the distributive impact in
respect of personal income taxation in India. The study
also showed that the t a x level which was only 0.0613 in
1962-63 rose to 0.2287 in 1988-89; but the tax progressivity
roere from 0.3692 to 0.6494 during the same period. This
proves that the tax level acquired more important role,
while the tax progrerrsivity lost its vigour in bringing
about redistributive effect on income over the years in
India . The redistributive impact of a tax was measured using
concentration index of pre-tax and post-tax incomes, by
employing Gini coefficient. Since 1962-63 to 1988-89 the
personal income taxation proved to be a very effective
measure in bringing about redistribution of income in India.
Though there has been slight variation in the degree of
impact, the value greater than one shows the positive
impact during the period of the study.
In order to examine the impact of change from political
stability to instability after 1975, on the determinants of
impact of personal income taxation on income distribution
in India, the study period was divided into two phases i.e.,
1962-1975 and 1975-1989. The coefficient of determinants of
the impact of personal income taxation on income
distribution are in the expected direction. But the degree
o f their influence on income distribution differed during
the two phases. The influence of tax progressivity on income
distribution was 0.3376 and 0.7734 during the first and
second phases respectively. This is due to the fact that
during the first phase the tax progressivity was higher than
the second phase. Higher tax progressivity leads to larger
amount of evasion and hence the degree of influence of tax
progressivity on income distribution is lower in the first
phase than in the second. The influence of income
inequality on income distribution due to personal income
taxation is 2.6565 and 1.54048 during the two phase8
respectively. During the first phaae the pre-tax income
inequality is higher than the second phase. Whenever there
is a high degree of pra-tax inequality in income
distribution, the degree of impact o f personal income
taxation on income distribution will also be higher. Thus
the reaulta showed that the impact of inequality of pre-tax
income on income distribution was higher in the first phase
compared to the second phase.
Similarly, the tax level coefficient ir~ insignificant
in the first phase, but it is significant in the second
phase. This is due to the fact that there is a clear shift
in the tax liability from the lower income groups to higher
income groups, when we move from the first phase to the
second pharre. In terms of number of t a x payers, the low
income t a x payers are larger than higher income tax payers.
Hence, this shift of t a x burden from lower income to higher
income will papulariae the government and will help to woo
the vote bank. But in the first phase this type of populist
policiee did not exist due to the stability of the
government. Besides, Chow test results also justifies the
above findings.
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TABLE 5.2
MARGINAL BURDEN OF PERSONAL INCOME TAX ACROSS SELECTED INCOME RANGES
................................................................ Year Upto R s . 2 0 , 0 0 0 R s . 5 0 , 0 0 0 Above
R s . 20 ,000 t o t o R s . 1 , 0 0 , 0 0 0 R s . 5 0 , 0 0 0 R s . 1 , 0 0 , 0 0 0
................................................................ 1962-63 0 .0401 0 .2480 0 . 5 7 8 9 0 . 7 7 9 1 1963-64 0.0387 0 .2538 0 .5797 0 .7602 1964-65 0 .0441 0 .2473 0 .5565 0 .7539 1965-66 0 .0479 0 .2478 0 .5224 0 . 7 3 9 2 1966-67 0 .0509 0 .2485 0.5017 0 .7300 1967-68 0 .0533 0 .2552 0.5126 0 . 6 9 3 5 1968-69 0.0555 0 .2567 0.5116 0 .6674 1969-70 0 .0567 0 .2598 0.51.71 0 . 6 7 4 3 1970-71 0.0598 0 .2627 0.5439 0 . 6 9 8 1 1971-72 0 .0624 0 , 2 6 5 3 0 .5659 0 . 7 1 3 7 1972-73 0 .0642 0 .2912 0.5786 0 .8443 1973-74 0 .0643 0 .2950 0 .6078 0 . 8 5 5 1 1974-75 0 , 0 6 4 3 0 .3065 0 .6313 0 .8678 1975-76 0.0610 0 .3015 0 .6170 0 .8261 1976-77 0 .0665 0 .2958 0 .4982 0 . 6 7 8 5 1977-78 0 .0612 0 .2774 0 .5346 0 . 7 6 7 1 1978-79 0.0736 0 .2714 0 .5293 0 .7269 1979-80 0.0740 0 .4381 0 .2922 0 .6740 1980-81 0 .0831 0 .2930 0 .5019 0 .6678 1981-82 0 .0664 0 .3008 0 .5828 0.6482 1982-83 0 .0874 0 .2960 0 .4793 0 .6800 1983-84 0.0724 0 . 2 9 9 1 0 .5033 0 . 6 3 1 1 1984-85 0.0274 0 . 3 0 2 3 0 .4439 0 .5755 1985-86 0 .0119 0 .2777 0 .3490 . 0 .4722 1986-87 0 .0112 0 .2797 0 .3522 0 .4756 1987-88 0 .0116 0 .2804 0 . 3 7 5 4 0 .4967 1988-89 0 .0206 0 .2403 0 .3212 0 .4610 1___-1-______________--- - - - - - - - I I - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
TABLE 5.3
RESULTS OF TAX LEVEL AND TAX PROGRESSIVITY OF PERSONAL INCOME TAX
...................................................... Year Tax Level Tax Progressivity ...................................................... 1962-63 0 .0613 0 .3692 1963-64 0 .0577 0 .4528 1964-65 0.0598 0 .6248 1965-66 0 .0655 0 . 6 3 2 4 1966-67 0 .0701 0 .6494 1967-68 0 .0748 0 . 3 6 9 5 1968-69 0.0793 0 . 5 6 0 4 1969-70 0 .0818 0 . 5 2 0 8 1970-71 0.0875 0 . 4 4 7 1 1971-72 0 .0927 0 .4077 1972-73 0 .0881 0 .4555 1973-74 0 .0895 0 . 4 4 4 3 1974-75 0 .0915 0 .4316 1975-76 0 .0926 0 . 4 4 9 9 1976-77 0 .1050 0 .3916 1977-78 0 .1001 0 . 4 1 2 4 1978-79 0 .1248 0 .3958 1979-80 0.1.271 0 .3370 1980-81 0 .1471 0 .3395 1981-82 0 .1408 0 .0599 1982-83 0 .1660 0 .3219 1983-84 0 .1818 0 .3211 1984-85 0.1957 0 .3461 1985-86 0 .2131 0 .3434 1986-87 0 .2219 0 .3268 1987-88 0 .2319 0 .3190 1988-89 0 .2287 0 . 3 0 3 1 _ _ _ _ _______________-----------------------------------
TABLE 5 . 4
RESULTS OF GINI-COEFFICIENT OF INCOME DISTRIBUTION BEFORE AND AFTER PERSONAL INCOME TAXATION
............................................................ Year G 1 G2 G 1 4 2 G1/G2 ............................................................ 1962-63 0 . 4 1 6 9 0.3626 0 . 0 5 4 3 1 . 1 4 9 8 1963-64 0 .3969 0.3347 0 .0622 1 . I 8 5 8 1964-65 0 .4118 0 .3288 0 . 0 8 3 0 1 . 2 5 2 4 1965-66 0 .4118 0.3208 0 . 0 9 1 0 1 . 2 8 3 8 1966-67 0 .4119 0.3128 0.0993. 1 , 3 1 6 8 1967-68 0 .4081 0.3474 0 . 0 6 0 7 1 . 1 7 4 7 1968-69 0 .3678 0.2786 0 . 0 8 9 2 1 . 3 2 0 2 1969-70 0 .4317 0.3475 0 . 0 8 4 2 1 . 2 4 2 3 1 9 7 0 - 7 1 0 .4087 0 .3313 0 .0774 1 . 2 3 3 6 1971-72 0 . 3 8 9 6 0 .3151 0 . 0 7 4 5 1 . 2 3 6 4 1972-73 0 .3693 0.2870 0 . 0 8 2 3 1 . 2 8 6 8 1973-74 0 .3579 0.2790 0 . 0 7 8 9 1 . 2 8 2 8 1974-75 0 .3465 0 . 2 7 1 1 0 .0754 1 . 2 7 8 1 1975-76 0 .3397 0 .2648 0 .0749 1 . 2 8 2 9 1976-77 0 . 3 5 2 8 0.2820 0.0708 1 . 2 5 1 1 1977-78 0 .3242 0 .2537 0 . 0 7 0 5 1 . 2 7 7 9 1978-79 0 .3078 0 . 2 3 1 9 0.0759 1 . 3 2 7 3 1979-80 0 . 2 8 9 3 0 .2242 0 . 0 6 5 1 1 . 2 9 0 4 1 9 8 0 - 8 1 0 . 3 1 0 1 0 .2346 0 . 0 7 5 5 1 . 3 2 1 6 1981-82 0 .2254 0 . 2 1 2 6 0.0128 1 . 0 6 0 2 1982-83 0 . 2 8 2 3 0 . 2 1 3 2 0 . 0 6 9 1 1 . 3 2 4 1 1983-84 0 .2948 0 .2166 0 .0782 1 . 3 6 1 0 1984-85 0 , 2 6 6 7 0 . 1 9 2 6 0 .0741 1 . 3 8 4 7 1985-86 0 .2826 0.21.53 0 .0673 1 . 3 1 2 6 1986-87 0 . 3 0 4 3 0 . 2 3 3 5 0 .0708 1 . 3 0 3 2 1987-88 0 . 3 2 0 1 0 . 2 4 2 6 0 .0775 1 . 3 1 9 5 1988-89 0 . 3 0 9 2 0 . 2 4 0 5 0 .0687 1 . 2 8 5 7 __-____________-___----------------------------------------- Note: GI = Gini coefficient of income distribution before
tax.
G2 = Gini coefficient of income distribution after tax.
TABLE 5 . 5
SIMPLE CORRELATION MATRIX BETWEEN DETERMINANTS AND IMPACT OF PERSONAL INCOME TAX ON INCOME DISTRIBUTION DURING 1962-63 TO 1 9 8 8 - 8 9
............................................................ LG LTP LPL LIE
LG 1 . 0 0 0 0 LTP 0 . 9 2 3 4 1 . 0 0 0 0 LPL - 0 . 0 6 3 5 - 0 . 3 1 8 0 1 . 0 0 0 0 LIE 0 . 7 4 4 7 0 .4887 0 .3390 1 . 0 0 0 0 _--_--------------------------------------------------------
TABLE 5 .6
SIMPLE CORRELATION MATRIX BETWEEN DETERMINANTS AND IMPACT OF PERSONAL INCOME TAX ON INCOME DISTRIBUTION DURING 1962-63 TO 1974-75
LG LTP LIE LTL LG 1 . 0 0 0 0 LTP 0 . 8 3 9 7 L.0000 LIE 0 .9252 0 .6872 1 . 0 0 0 0 LTL 0 .1036 -0 .1831 0 . 2 6 6 7 1 . 0 0 0 0
TABLE 5.7
SIMPLE CORRELATION MATRIX BETWEEN DETERMINANTS AND IMPACT OF PERSONAL INCOME TAX ON INCOME DISTRIBUTION DURING 1975-76 TO 1 9 8 8 - 8 9
............................................................ LG LTP LIE LTL
LG 1 . 0 0 0 0 LTP 0 . 9 6 9 4 1 . 0 0 0 0 LIE 0 . 9 2 6 2 0 .8458 1 . 0 0 0 0 LTL 0 .0885 -0 .1163 0.2855 1 . 0 0 0 0 ............................................................
TABLE 5.8
DETERMINANTS OF IMPACT OF PERSONAL INCOME TAX ON INCOME DISTRIBUTION DURING 1962-63 TO 1988-89
Equation-) Equation-1 Equation-2 Variable ............................................................ Constant -1.0772 -1.1605
(-15.20)* (-29.43)*
LTP
LTL
L I E
F 235.4* 338.5* ............................................................ Note: Parenthesis shows ' T ' value.
* Significant at one per cent level.
TABLE 5.9
CHOW TEST RESULTS
RSS RSS RSS n -n - 2K F Inference P 1 2 1 2
0.0193886 0.004311 0.007096 19 3 . 3 2 V h e estimated equation is not stable.
Note: *Significant at five per cent level.